Binding Financial Agreement Enforceable

Case Study: When Binding Financial Agreements Aren’t Enforceable

Binding financial agreements can allow for certainty, trust, and peace of mind in a relationship.

However, the High Court has made it clear in a recent case that it will not enforce any binding financial agreements made in unconscionable circumstances, particularly when there is a significant power imbalance between the parties.

What Are Binding Financial Agreements?

Binding financial agreements are legally binding agreements that address what happens to a couple’s finances and property in the event that there is a break down in a marriage or de-facto relationship.

The Family Law Act 1975 is the relevant legislation which applies to binding financial agreements. The binding financial agreement can protect assets including cash, property, superannuation and inheritances.

Each party must seek independent legal advice, and the binding financial agreement must contain a statement from a legal practitioner. The statement is regarding the effect of the prenuptial on the rights of the party, the advantages and disadvantages to each party and whether the agreement is just and equitable.

Recent Case: Thorne v Kennedy

A recent High Court case has demonstrated that if a binding financial agreement is entered into in circumstances of unconscionable conduct, the agreement will not be upheld.

Thorne v Kennedy involved a binding financial agreement between a wealthy Australian property developer and his ex-wife.

The couple met online in 2006 on a website for potential brides. At the time, Ms Thorne was 36 years old, living in the Middle East with no substantial assets. Mr Kennedy was 67 years old and had assets worth between $18 million – $24 million.

Ms Thorne moved to Australia. Then, ten days before their wedding Mr Kennedy took Ms Thorne to a solicitor to obtain advice about the terms of the binding financial agreement. The lawyer told Ms Thorne it was the worst agreement they had ever seen, and advised Ms Thorne not sign it. Mr Kennedy told Ms Thorne that if she did not sign the agreement then the wedding would not go ahead. Despite the lawyer’s ‘significant concerns’, Ms Thorne signed the agreement anyway.

The couple separated in 2011 and Ms Thorne was allocated what the High Court described as a ‘piteously small’ lump sum payment based on the terms of the binding financial agreement. After lengthy legal proceedings, the High Court ruled that Mr Kennedy had taken advantage of his ex-wife’s vulnerability to obtain an agreement which was ‘entirely inappropriate and wholly inadequate.’ The agreement was entered into as a result of undue influence, illegitimate pressure and unconscionable conduct.

The Federal Circuit Court will now consider Ms Thorne’s application a property settlement matter.

Impact on Binding Financial Agreements in Australia

This ruling has been considered a landmark case in the interpretation of binding financial agreements in Australia.

It is likely to make binding financial agreements harder to enforce if there is an imbalance in power. The case also distinguishes the commercial principles of contract law in comparison to the regulation of financial matters in an intimate relationship.

Binding financial agreements are not cheap documents and must be drawn up and entered into carefully with the appropriate advice.

If you would like to discuss binding financial agreements with one of our experienced family lawyers, please contact us on 9963 9800 or at .